The discourse on corporate governance is commonly centred around large public companies, and often in hindsight, when something goes amiss.
Typical controversies arise about the oversight shown by the independent directors towards the family owners, the standards of financial disclosures, remuneration levels of family members and related-party transactions.
It is a fact, and many consider it a strength, that most Indian enterprises are family-owned and managed. Family companies are seen as more long-term oriented than companies dominated by institutional and financial investors who have a shorter time horizon within which to show results to their constituents.
The underbelly of the family companies shows such issues as nepotism, the perpetuation of family management regardless of competence and related-party involvement in many a connected activity of the enterprise.
Lack of accountability is often a handicap for the minority investors in such enterprises as the majority owner, managing the enterprise, somehow benefits irrespective of the company’s true performance.
In this milieu, Thejo Engineering Ltd, based in Chennai, comes across as an unusual instance of a small-sized company, little-noticed, essentially family-owned, and not part of the new start-up frenzy, having transformed itself within a decade, to become an exemplar in governance practices.
The transformation started with the induction of a professional managing director (MD) in the first decade of the current millennium to helm the company and drive the agenda of growth, governance, and grooming.
At the time of his induction as MD, professor VA George had nearly three decades of experience in oversight roles in the corporate sector and a rich experience of training and learning in top global management institutions. His penchant for corporate governance practices that created the right culture and drove the overall performance, gained credence with the time.
In 2012, the company took the pioneering step of raising capital through the EMERGE platform of NSE and, in fact, was the first one to do so! Eschewing the trend of the times to court private equity, Thejo chose public funding that carried greater accountability to a wider set of investors than the captive and the limited agenda of a single or a couple of short-term oriented private equity (PE) funds, who themselves often fall short on the governance grid.
While the two founding families still hold about 55% of the equity, the striking feature is that individual investors hold close to 33% of the capital creating a very diverse pool of investors compared to most listed companies that have a dominance of the local or foreign institutions.
Most of such individual investors seem to hold a meaningful larger stake as per the data in the annual report, elevating the level of scrutiny and accountability which gets spread among a larger group of serious and professional investors like family offices and the high networth individuals (HNIs).
A feature that would stand out as the most unusual for any public company, on the governance side, is the fact that all the committees of the board are chaired only by an independent director; and the two most critical committees being the audit committee, and the nomination and remuneration committee, comprises only independent directors! Is there another one like this?
The diversity in the professional qualifications and the experience of the independent directors reflect a well-conceived approach to build a board that will add due value to any important deliberation, rather than be just ornamental.
Unlike many Chennai companies that have close friends and relatives (other than those excluded under law) of the promoters count as independent directors, the choice here, going by the profile in the website, indicates diversity and inclusiveness. No retired bureaucrats or retired public sector bank (PSB) chairpersons that overwhelm most Indian boards!
The roles of the chairman and managing director (MD) got divorced as early as in 2008. This is still a work-in-progress on the part of the Securities and Exchange Board of India (SEBI) to get this accepted and implemented in most of the family-owned listed companies in India.
A recent controversy that has impacted some of the listed companies has been the lack of proportionality in the remuneration of the managerial personnel belonging to the promoter group. At first blush, the remuneration levels of the executives who are part of the two promoter families seem within reasonable limits. But the presence of a handful of such people in senior management shows the company is not fully cured of this disease.
The financial parameters reflect a steady and consistent growth in a field that is quite competitive and Thejo seems to have created a niche with an equal contribution to the top-line from both manufactured goods and delivery of services.
The proportion of exports is a healthy sign of diversification of the customer base across continents and the ability to slug it out in the markets where only quality and price counts and nothing else.
The share of Thejo has out-performed the SME index of NSE by a significant margin during the period 2020-21 when the small cap stocks rose meteorically across the board, making the outperformance a singular feat.
In effect, the market is acknowledging the quality of governance and management and it is hoped that the company betters its current high governance standards in the coming years and shines the light on the rest of the market to follow suit!
A tiny tot that stands tall!
NOTE from Editor: Thejo Engineering Ltd is one of the companies shortlisted for Moneylife’s first-ever Corporate Governance Awards that is based on direct nominations from active investors, rigorously processed and analysed to eliminate biases.
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(Ranganathan V is a CA and CS. He has over 43 years experience in the corporate sector and consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as senior advisor post-retirement handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)
